Younger Homeowners Wealthier

Even if it’s a stretch now, buying your first home by age 35 can mean more wealth in retirement.

Nicole Christianson, a 26-year-old sales rep, was tired of writing big checks for tiny apartments. And she wanted to do more with her cash than stash it in a savings account.

One night, she and her husband Thure, 28, took a look at their newly com­bined finances and un­cov­ered a pleasant sur­prise: Together, they had saved enough for a 5% down payment on the af­ford­able fixer-upper right across the street from their Milwaukee apart­ment. They closed in December 2017, and Nicole Christianson says they’re happy to finally be “making something that’s ours.”

Millennials’ homeownership goals

Many in Christianson’s age group are chasing that feeling. Eighty-two percent of young adults say owning a home is a priority, according to NerdWallet’s 2018 Home Buyer Report. If they can make it happen, most will be first-time homebuyers, but that ‘if’ looms large.

Still, millennials are a optimistic lot, and research shows there are big rewards in store for those who find a way to buy their first home sooner rather than later.

How buying young can pay off later

Of today’s older adults, those who bought their first home from ages 25 to 34 accumulated the most hous­ing wealth by their 60s  — a median of around $150,000, according to a report by the Urban Institute, a nonprofit research organization.

In contrast, the median housing wealth for those in their early 60s who bought later (ages 35 to 44), was about half as much, at $76,000. Homeowners who bought after they were 45 had about $44,000 in hous­ing wealth by their 60s.

“Housing wealth” is anoth­er term for equity, which is the difference be­tween the home’s market value and an owner’s mort­gage balance. Equity be­comes profit when a home is sold or refinanced, and it’s more likely to grow the longer one owns the home.

The takeaway for mil­len­nials? Buy a home as early as you can feasibly do so, says Laurie Goodman, vice president of housing fi­nance policy at the Urban Institute.

Paying rent to your­self is a top perk of home­ownership, Goodman says. “It’s also forced savings in the sense that you’re paying down a mortgage each month. Yes, you could put away the same amount of money in a savings plan, but people don’t.”

Thinking about home­own­er­ship as part of re­tire­ment planning is im­port­ant for millennials, says Jung Hyun Choi, a re­search associate at the Urban Institute.

Loans, programs that boost affordability

Certain mortgage op­tions can reduce the up­front costs of buying a home, allowing younger bor­rowers to qualify with far less than the traditional 20% down payment.

“We wanted to go with a VA lender,” says Marissa Avila, 33, a self-employed small-business consultant in Norfolk, Virginia. Her husband Greg, 36, is in the Navy, so they were eligible for a loan guaranteed by the Department of Veterans Affairs. The VA loan helped the Avilas buy their colonial-style house with no down payment.

Low down payment loans aren’t just for borrowers in uniform: Some conventional loans require just 3% down, the minimum for a Federal Housing Administration mortgage is 3.5%  and eligible borrowers can get a Department of Agriculture, or USDA, loan with nothing down.

Goodman recommends first-time homebuyers investigate down payment assistance programs. State housing agencies often offer mortgage, down payment and closing-cost assistance. These programs may allow millennials to buy a home sooner than if they try to build savings, she says.

Talking to a lender can be a good first step if you’re not sure that you’re ready, Avila says.

“The worst that someone is going to say is ‘No, you need to save a little bit more money,’ and then you know where you stand,” she says. “It’s so much easier once you finally start that conversation.”

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